An inquiry into the economic role of values calls for the restoration of a rich tradi-
tion within economics starting from Aristotle, including Adam Smith, in particular
his Theory of Moral Sentiments, with a modern continuation in the work of Max
Weber, Karl Polanyi, E.P. Thompson, and most recently Deirdre McCloskey and
her treatises on bourgeois virtues. This is the tradition that defines economics as a
moral science and ultimately concerns the conditions for and characteristics of a
good and meaningful life. This concern is on my mind in the subsequent discussion
of culture in the more narrow meaning of the arts.

Take a good look at a famous picture from an economists' perspective. The Portrait
of Dr Gachet by Van Gogh, reproduced on the cover of this book, is the highest
priced painting ever. In May 1990 it was hammered at the price of 75 million dollars
by Christie's in New York to Rioei Sato (a Japanese paper manufacturer, who had
to pay an additional 7.5 million dollar for the buyer's premium). Van Gogh was
unable to sell the painting himself. Should we conclude either that the contempo-
raries of Van Gogh were blind to the value of this painting or that Mr Sato was out
of his mind?

Not so, the economist in me responds. There is a reason for everything, includ-
ing the paying of ridiculous sums for a painting. One reason is that Van Gogh
paintings are currently hot and very much in demand while their supply is fixed.
When the quantity demanded exceeds the quantity supplied, the price goes up;
when the difference is ridiculously large, the price will skyrocket. Many would have
wanted this painting -- the directors of the Van Gogh Museum and the Kröller-
Müller Museum might have committed murder for it -- but they could not afford it.
A painting like this is an investment. Mr Sato may even have liked it, but the only
justification for laying out such a large sum for paint on canvas is that it is an asset
that will maintain its value, more or less, so that he can sell it again. It is elementary
-- elementary economics, that is. (As it turns out, Sato really wanted to be cremat-
ed with the Van Gogh. Fortunately, although he has died, the painting is still alive.)

Elementary economics tells us to see things like paintings as commodities that
are costly to produce and have their value determined in the interplay between
demand and supply in the marketplace. Economists presume that people are rea-
sonable enough, that they never pay more for a work of art than they consider it
worth. People pay nothing for art that they do not value and they do not pay infi-
nite amounts for priceless art. William Gramp, an economist, concludes from this
that price is the best indicator of the aesthetic value. ¹ It is a shocking perspective if
you care about the value of art. But try to prove him wrong.

Another issue that an economist of art and culture has to confront is the eco-
nomic significance of the cultural sector. It is a popular issue nowadays. Economic
arguments are fashionable, so advocates of subsidies for the arts would like to be
able to argue that their arts make sizeable economic contributions. If a subsidy to a

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